The Art of Credit Derivatives

Credit derivatives have been instrumental in the recent increase in securitization activity. The complex nature and the size of the market have given rise to very complex counterparty credit risks. The Lehman failure has shown that these issues can paralyse the financial markets, and the need for detailed understanding has never been greater. The Art of Credit Derivatives shows practitioners how to put a framework in place which will support the securitization activity. By showing the models that support this activity and linking them with very practical examples, the authors show why a mind-shift within the quant community is needed - a move from simple modeling to a more hands on mindset where the modeler understands the trading implicitly. The book has been written in five parts, covering the modeling framework; single name corporate credit derivatives; multi name corporate credit derivatives; asset backed securities and dynamic credit portfolio management. Coverage includes: groundbreaking solutions to the inherent risks associated with investing in securitization instruments how to use the standardized credit indices as the most appropriate instruments in price discovery processes and why these indices are the essential tools for short term credit portfolio management why the dynamics of systemic correlation and the standardised credit indices are linked with leverage, and consequently the implications for liquidity and solvability of financial institutions how L vy processes and long term memory processes are related to the understanding of economic activity why regulatory capital should be portfolio dependant and how to use stress tests and scenario analysis to model this how to put structured products in a mark-to market-environment, increasing transparency for accounting and compliance. This book will be invaluable reading for Credit Analysts, Quantitative Analysts, Credit Portfolio Managers, Academics and anyone interested in these complex yet important markets.

Credit derivatives have been instrumental in the recent increase insecuritization activity. The complex nature and the size of themarket have given rise to very complex counterparty creditrisks. The Lehman failure has shown that these issues canparalyse the financial markets, and the need for detailedunderstanding has never been greater.The Art of Credit Derivatives shows practitioners how toput a framework in place which will support the securitizationactivity. By showing the models that support this activityand linking them with very practical examples, the authors show whya mind-shift within the quant community is needed - a move fromsimple modeling to a more hands on mindset where the modelerunderstands the trading implicitly.The book has been written in five parts, covering the modelingframework; single name corporate credit derivatives; multi namecorporate credit derivatives; asset backed securities and dynamiccredit portfolio management.Coverage includes:* groundbreaking solutions to the inherent risks associated withinvesting in securitization instruments* how to use the standardized credit indices as the mostappropriate instruments in price discovery processes and why theseindices are the essential tools for short term credit portfoliomanagement* why the dynamics of systemic correlation and the standardisedcredit indices are linked with leverage, and consequently theimplications for liquidity and solvability of financialinstitutions* how Lévy processes and long term memory processes arerelated to the understanding of economic activity* why regulatory capital should be portfolio dependant and how touse stress tests and scenario analysis to model this* how to put structured products in a mark-to market-environmentincreasing transparency for accounting and compliance.This book will be invaluable reading for Credit AnalystsQuantitative Analysts, Credit Portfolio Managers, Academics andanyone interested in these complex yet important markets.